Affinity Fraud: Beware of
Swindlers Who Claim Loyalty to Your Group
State securities regulators are warning investors to be on guard against a rise
in affinity group fraud. What is affinity fraud? Its simple, but the causes
that give rise to it are often more complex.

Everyone, in some way or another, is connected to a group or association. Our
interests, backgrounds, and other factors will naturally lead us to those
organizations or affiliations that serve our needs. Race, culture, and
religious beliefs also play a role in identifying us as members of unique
groups that we often come to trust -- sometimes to our detriment.

In a world of increasing complexity, many people feel the need for a short-hand
way of knowing who to trust. This is especially true when it comes to investing
money. Unfamiliar with how our financial markets work, too many people don’t
know how to thoroughly research an investment and its salesperson. So, many
fall prey to affinity group fraud in which a con artist claims to be a member
of the same ethnic, religious, career or community-based group.

"You can trust me," says the scamster, "because I’m like you. We
share the same background and interests. And I can help you make money."

Another equally effective pitch, if the con artist is not a member of the
group, is to lull members into a misplaced trust by selling first to a few
prominent members, then pitching the scam to the rest by using the names of
those previously sold. The effect is the same: Once the connection to the group
is understood, the natural skepticism of the individual member is overcome, and
one more group name is added to the sales column.

Once a victim realizes that he or she has been scammed, too often the response
is not to notify the authorities but instead to try to solve problems within
the group. Swindlers who prey on minority groups play the loyalty angle for all
its worth.

With immigration at levels not seen since early this century, many new arrivals
to our country are seen by financial swindlers as ripe for the picking.
Immigrant groups are particularly vulnerable to this type of fraud because they
are sometimes isolated from the larger community and their flow of information
may be limited because of language and other barriers.

Some members of other long-established minority groups have accumulated savings
and achieved a certain standard of living through years of hard work. Often,
they want to "give back" to the community in order to help others
like themselves. However, such inclinations often make these group members
sitting ducks for deceitful con artists who, despite sharing the same ethnicity
or culture, are really motivated solely by greed.

Religious affinity group fraud also continues to be a widespread problem,
according to state securities regulators. And swindlers who prey upon people of
their own religion come in all denominations.

Among the Victims...
A 35-year-old Chinese-American writer who lost $55,000; a college student from
Bangladesh who lost $17,000; an elderly African-American woman from Washington,
D.C. who was swindled out of $20,000; a Christian couple from Arizona who lost
their home and savings and were forced to move back to Wisconsin to live with
relatives.

The States Take Action...
The California Department of Corporations is investigating more than 20
cases of commodity dealers targeting various Asian communities in the Los
Angeles area for foreign currency and precious metals investments -- supposedly
being made on their behalf on the Hong Kong exchange. In one case, the
Department issued a Cease and Desist order in April and filed a civil action
for an injunction in the case of a Los Angeles company called Asia Mercantile,
Inc. The company advertised in the "China Daily News" in December
1996 for executive positions at a new bank in Shanghai, China. Victims were
told the company was looking for people without any experience in the banking
business, so they could be trained from scratch. All 15 people attending the
subsequent seminar were from China. After three days of training, the marketing
manager said that every person expecting to get a job from the "bank"
in Shanghai had to put in practice what they had learned about foreign currency
exchange transactions by putting up money as a test to see if they were
qualified. The investments were touted as "no-risk" money-making
opportunities and ranged from $15,000 to $300,000. Investors lost over 90% of
the money invested.

According to the Kansas Office of the Securities Commissioner, at least
a dozen Wichita State University students from Bangladesh have been left
without cash -- and possibly without a chance to finish their education -- by
the alleged action of As if Ameen. A former stockbroker with Primeline
Securities Corp., Ameen, who is also from Bangladesh, is alleged to have
absconded with the students` investments of between $17,000 and $175,000
apiece. Investigators are looking into allegations that at least 100 people
from several states lost money, the total perhaps reaching into the millions of
dollars.

In Florida, the Division of Financial Investigations took action
against Texas Club Investments and Associates (TCIA) -- a Hispanic-run
organization based in Miami that targeted Hispanics. Through advertisements in
a local Spanish-language newspaper which read, "Invest from $3,250 to
$32,500 and receive profits from $546 to $5,460 per month," Lazaro
Rodriguez promised returns of at least 9.8% per month from TCIA oil wells. In
fact, there never were any oil wells. According to subpoenaed bank records,
funds were used by the perpetrators to pay the returns promised to investors,
were withdrawn by them or were used for purposes other than oil production.
Almost all of the investors suffered a net loss with the amount of loss
depending upon when, how much, and how many times they invested. Approximately
$2 million was solicited from about 400 clients. Ultimately, Lazaro Rodriguez
was sentenced to five years in prison with 20 years probation and ordered to
pay $851,000 in restitution.

The Maryland Division of Securities reports that Metropolitan
Investments President Larry Bland appealed to the African-American community to
buy shares in his company, which, he said, would benefit the community by
providing health and other social services in Metropolitan’s building. In fact,
Metropolitan did not own the building and used most of the investors` money for
pyramid schemes and other purposes unrelated to the social interests of the
community. A Final Order was issued on June 6, 1997, against Larry Bland to
cease and desist from selling unregistered securities, naming Bland primarily
responsible for the misrepresentations and omissions made in the solicitations.
He was permanently barred from engaging in securities transactions and ordered
to pay a civil penalty of $125,000.

The Utah Division of Securities relates that Robert Fain preyed upon
fellow members of the Assembly of God Church in Ogden, Utah, through the use of
church membership lists. Through his company, Making Good Choices, Inc., Fain
sold bogus "royalty interest" in such inventions as a "Mess Free
Bird Feeder" and "Vice Script" automobile theft-prevention
engraving system. Victims were promised returns of "25% to 100% for years
to come." In most cases, no products were ever sold. Losses by church
members were approximately $200,000. On February 15, 1997, Fain was sentenced
to 15 years in the Utah State Prison.

The Arizona Securities Division tells the story of a 31-year-old mother
of three in Scottsdale, Arizona, who received $300,000 from a life insurance
policy after her husband died of AIDS. Not knowing what to do with the money,
she invested it with Lay Minister Frank Luca of the Eagle’s Nest Christian
Embassey, where she was a member. A pamphlet written by the church pastor
describing Luca`s "Vision Plan" for funding a new $2 million church
building stated:

"For the past year I have prayerfully sought the Lord for the plan and
direction he would have us take in regards to the financing costs of the
construction and improvements of the new building.... The plan and direction
God has given us is strategic, sound and safe!... In the love of Jesus, Pastor
Mike Maiden."

Today, Ms. Short and her family, as well other many other former Eagle’s Nest
parishioners, are devastated. Frank Luca pled guilty on September 8, 1997, to
operating a Ponzi scheme and has agreed to pay restitution of $11.4 million.
Sentencing is set for November 18, 1997.

The New York Bureau of Investor Protection and Securities receives a
constant stream of complaints from surprised and perplexed victims of friends,
neighbors, members of clubs and organizations, fellow church members, and even
members of their own family. They often make such statements as: "I’ve
known him all my life"; "I trusted her as if she were a member of my
family"; "He was such a nice young man"; or "We had the
same values and beliefs." The last of these statements was made by a
complainant who had lost $100,000 by investing with a member of her church
group who was going to produce a film supporting the political positions and
beliefs of the group. The film was not made and the scamster disappeared.

How to Avoid Affinity Group Fraud...

Beware of the use of names or
testimonials from other group members. Scam artists frequently pay out high
returns to early investors using money from later arrivals. Accordingly, early
investors may be wildly enthusiastic about a scheme that may collapse entirely
once you’ve invested.

Obtain a prospectus or other
form of written information that details the risks in the investment and
procedures to get your money out.

Ask for professional advice
from a neutral outside expert not in your group -- an accountant, attorney or
financial planner -- to evaluate the investment.

Ask your state or provincial
securities agency for help. Before investing any money, call your local
securities agency in order to learn more about the salesperson and firm. The
simplest inquiry is to ask if they are registered to do business in your state.
And is the investment allowed to be sold. If one or the other is not
registered, that is a sure warning to inquire further. Don’t take the word
of a salesperson! Check out the investment yourself.